Meaning And Types Of Assets

Assets are properties of a business. It can be defined as something bought by a company to increase its value, productivity and income, or to help benefit the company’s overall operations.

Assets = Liabilities + Capital (which for a corporation equals owner's equity)

Assets are listed on the balance sheet. On a company's balance sheet certain divisions are required by generally accepted accounting principles (GAAP), which vary from country to country.

Examples of assets include

PROPERTIES OF AN ASSET

There are three key properties of an asset:

Ownership: Assets represent ownership that can be eventually turned into cash and cash equivalents.

Economic Value: Assets have economic value and can be exchanged or sold.

Resource: Assets are resources that can be used to generate future economic benefits.

CLASSIFICATION OF ASSETS

Assets are generally classified in three ways:

1. Convertibility: Classifying assets based on how easy it is to convert them into cash.

2. Physical Existence: Classifying assets based on their physical existence.

3. Usage: Classifying assets based on their business operation usage.

CLASSIFICATION OF ASSETS: CONVERTIBILITY

If assets are classified based on their convertibility into cash, assets are classified as either current assets or fixed assets.

1. Current Assets

Current assets are assets that can be easily converted into cash and cash equivalents (typically within a year). Current assets are also termed liquid assets and examples of such are:

2. Fixed or Non-Current Assets

Non-current assets are assets that cannot be easily and readily converted into cash and cash equivalents. Non-current assets are also termed fixed assets, long-term assets, or hard assets. Examples of non-current or fixed assets include:

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CLASSIFICATION OF ASSETS: PHYSICAL EXISTENCE

If assets are classified based on their physical existence, assets are classified as either tangible assets or intangible assets.

1. Tangible Assets

Tangible assets are assets that have a physical existence (we can touch, feel, and see). Examples of tangible assets include:

2. Intangible Assets

Intangible assets are assets that do not have a physical existence. Examples of intangible assets include:

ALSO READ: Depreciation Of Fixed Assets, Causes Of Depreciation

CLASSIFICATION OF ASSETS: USAGE

If assets are classified based on their operational usage, assets are classified as either operating assets or non-operating assets.

1. Operating Assets

Operating assets are assets that are required in the daily operation of a business. In other words, operating assets are used to generate revenue. Examples of operating assets include: